In the wake of global scandals involving kickbacks and accounting fraud, one unlikely country, India, is aiming to set a tone in overhauling its corporate oversight laws.
This month, the nation’s upper house of Parliament passed the Companies Bill, 2012, sweeping legislation meant to overhaul auditing, impose stiffer penalties for fraud and create more government oversight of businesses.
The lower house had passed the bill last year. Once India’s president, Pranab Mukherjee, signs it into law, it will replace India’s 57-year-old corporate legislation that critics say had failed to keep up with changes in business practices.
India, a nation notoriously rife with graft and bribery, was partly motivated to pass the legislation in the wake of an accounting scandal that has been called India’s Enron. In 2009, B. Ramalinga Raju, the chairman of a prominent outsourcing company, Satyam Computer Services, confessed to overstating company assets and earnings by more than $1 billion, and then resigned. The fact that one company could defraud shareholders of such a large sum despite regular audits made painfully obvious the need for greater oversight in corporate India.
But some four years after that startling case, little change in corporate laws had taken place until now.
The new legislation will affect all companies doing business in India, regardless of their size, structure or ownership, including the estimated 8,000 corporations listed on three national stock exchanges.
Yet while hopes remain high that the bill will appeal to foreign investors, and kick-start India’s economic growth, nearly a decade of revisions has left a watered-down measure lacking structure. Much of the bill depends on new committees and rules that have yet to be drafted, so legal experts have doubts about its ability to police corporations.
“It started off trying to make things easier for